On Friday, California Governor Gavin Newsom signed a budget that scales back several progressive initiatives—including a landmark health care expansion for low-income undocumented adults—in a bid to close a $12 billion deficit.
For the third consecutive year, the nation’s most populous state has been forced to cut funding or halt programs championed by Democratic leaders.
Earlier in the day, lawmakers approved the $321 billion spending plan after reaching an agreement with Newsom and key Democratic officials.
California Gov. Gavin Newsom approved a budget that scales back several progressive priorities, including the expansion of health care for low-income undocumented adults.
The whole budget could be scrapped if lawmakers fail to pass housing legislation by Monday that would streamline construction approvals.
Officials stressed that the plan steers clear of the harshest cuts to critical safety net programs by tapping into state reserves, borrowing from special funds, and postponing payments to balance the books.
“It’s balanced, preserves significant reserves, and prioritizes support for Californians,” Governor Newsom said in a statement on the budget.
However, California faces looming federal cuts to health care programs and widespread economic uncertainty that could trigger deeper budget shortfalls.
In May, Newsom cautioned that federal actions—including tariffs and immigration enforcement—could reduce state tax revenue by up to $16 billion.
“We’ve had to make some tough decisions,” Senate President Pro Tempore Mike McGuire said Friday. “While we won’t please everyone, we’re moving forward without imposing new taxes on everyday Californians.”
Republican lawmakers criticized Democrats for excluding them from budget talks and argued that the plan doesn’t do enough to tackle looming deficits, which could reach $17 billion to $24 billion annually.
“We’re increasing borrowing, dipping into the rainy day fund, and not cutting spending,” said Republican state Sen. Tony Strickland before the vote. “This budget also fails to address California’s affordability crisis.”
Here’s a breakdown of spending in key areas:
Health Care
Starting in 2026, California will halt enrollment of new undocumented adult patients in its state-funded health care program for low-income residents under the budget deal.
Starting July 2027, the state will require a $30 monthly premium for immigrants remaining on the program—including some with legal status—applying to adults under 60.
These changes to Medi-Cal represent a scaled-back version of Governor Newsom’s original May proposal but still deliver a significant setback to the ambitious effort launched last year to move California closer to universal health care.
Democratic State Senator Maria Elena Durazo broke ranks with her party and voted “no” on the health care cuts, calling them a betrayal of immigrant communities.
The budget also cuts $78 million in funding for mental health phone lines, including a program that serves 100,000 people annually.
Funding for dental services for low-income residents will be eliminated in 2026, and the rollout of legislation requiring fertility services coverage by health insurers will be delayed six months to 2026.
However, lawmakers pushed back on several of Newsom’s proposed cuts they labeled “draconian.”
The deal preserves funding for in-home domestic and personal care services for some low-income residents and Californians with disabilities, and it avoids cuts to Planned Parenthood.
Environment
Lawmakers agreed to allow the state to draw $1 billion from its cap-and-trade program to support firefighting efforts.
The cap-and-trade system is a market-based approach to cutting carbon emissions, requiring companies to purchase credits for pollution. The revenue generated is intended for climate-related projects.
Governor Newsom proposed reauthorizing the program through 2045, including a guarantee that $1 billion annually would be allocated to the state’s long-delayed high-speed rail project.
The California State Capitol building in Sacramento
The budget does not guarantee funding for the high-speed rail project, as lawmakers preferred to finalize spending plans separately from the budget process.
Currently, the rail project receives about 25% of cap-and-trade proceeds—roughly $1 billion annually, depending on the year.
Legislative leaders also approved funds to help transition part-time firefighters into full-time roles. Many firefighters currently work just nine months per year, which lawmakers say hampers wildfire prevention and response efforts.
Included in the deal is $10 million to raise the daily wage for incarcerated firefighters, who currently earn between $5.80 and $10.24 per day.
Public Safety
The budget allocates $80 million to support the implementation of a tough-on-crime initiative voters overwhelmingly approved last year.
The measure classifies repeat shoplifting as a felony, increases penalties for certain drug offenses, and empowers judges to mandate treatment for individuals with multiple drug charges.
Of the funds, $50 million will assist counties in expanding behavioral health bed capacity, $15 million will support probation officers’ pre-trial services, and $20 million will go to courts to handle increased caseloads.
However, advocates—including sheriffs, district attorneys, and probation officers—argue that the funding falls short. Some estimate the program will require about $400 million in its first year.
A protester holds American and Mexican flags outside the Federal Building in Los Angeles during a rally on June 6, 2025.
Other Priorities
Governor Newsom and lawmakers agreed to increase the state’s film tax credit from $330 million to $750 million annually, aiming to boost Hollywood. This program, a key priority for Newsom, will begin this year and run through 2030.
The budget also allocates $10 million to support immigration legal services, including deportation defense.
However, cities and counties won’t receive new funding to tackle homelessness next year—a move local leaders warn could result in the loss of thousands of shelter beds.
Additionally, the budget does not advance Newsom’s proposal to expedite a major underground tunnel project designed to reroute a significant portion of California’s water supply.
